Why does insurer market stability matter?

Construction | Oct 13, 2016

When searching for a builders risk partner, insurance professionals and their construction clients have many options. While a host of important factors influence the selection process – expertise, capacity, flexible underwriting, efficiency and claims handling, choosing an insurer with strong market presence and financial stability is perhaps one of the most critical to consider.

Builders risk insurance providers face potentially large risk exposure when natural disasters strike; a provider without the necessary market stability may not be able to weather the storm. This is especially true in catastrophe-prone areas where construction projects may, by necessity, occur more frequently and bear a higher risk of loss. According to the National Oceanic & Atmospheric Administration (NOAA), in the 10 years prior to Hurricane Katrina in 2005, the number of named storms averaged 15 per year—which was an increase from the eight per year average over the previous 23 years. The impact of this shift in catastrophic storm patterns had an exponential effect on the insurance industry serving those hurricane-prone markets.

According to the Insurance Information Institute (III), the insurance industry considers a catastrophe any single event with $25 million or more in insured losses. In the past two decades, the U.S. has seen measurable catastrophic events. Take, for example, Hurricane Katrina which generated $49 billion in insurance losses (adjusted for inflation). On a lesser scale, the III found the 2011 tornadoes that battered the Midwest and South brought flooding, hail and wind damage that cost the insurance industry $7.7 billion (adjusted for inflation).

An insurer that isn't equipped to handle potentially large losses from earthquakes, tornadoes, hurricanes, floods or wind damage may not have the staying power to be a long-term solution for clients, or to offer attractive premiums and coverage options. In the wake of Hurricane Katrina, many insurance companies exited the affected states in an attempt to limit their losses from future events.

In considering market stability, agents must assess the longevity of a company’s dedicated presence to regions throughout the country. For insurance agents writing builders risk insurance, it is potentially problematic when an insurer stops working in a particular state or region. Even if the agent does not have any clients in that state or part of the country at any given moment, existing clients could expand into that region in the future and may need coverage for their business across state lines.

When an agent is unable to offer a specific provider product to a client who was previously happy with that insurer, the lack of stability could reflect negatively on the agent and their business capabilities.

Choosing a financially stable insurer, and choosing a provider that can help builders risk insurance clients in any part of the country, will help provide agents and their clients with much-needed peace of mind knowing that, regardless of what Mother Nature brings, the insurer will be there for the long term.

This is intended as a general description of certain types of insurance and services available to qualified customers. Your policy is the contract that specifically and fully describes your coverage. The description of the policy provisions gives a broad overview of coverages and does not revise or amend the policy.

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